The effect of unemployment on consumption: An experimental analysis

E Carbone; J D Hey

doi:10.1111/j.1468-0297.2004.00236.x

The effect of unemployment on consumption: An experimental analysis

E Carbone, J D Hey

Economics

Research output: Contribution to journal › Article › peer-review

Abstract

This paper reports on an experiment that investigates the apparently robust phenomenon of over-sensitivity of consumption to current income. Using a particularly simple formulation, we also investigate whether individuals correctly respond to their employment status. We find that subjects over-react. Our data enables us to investigate where this over-sensitivity originates; we conclude that economic agents differ in their ability to plan ahead and understand the dynamic process determining their employment status. However, agents seem able to respond appropriately to changes in the parameters governing their decision processes, in that the comparative static predictions of the theory are largely confirmed.

Original language	English
Pages (from-to)	660-683
Number of pages	24
Journal	The Economic Journal
Volume	114
Issue number	497
DOIs	https://doi.org/10.1111/j.1468-0297.2004.00236.x
Publication status	Published - Jul 2004

Keywords

UNCERTAINTY

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10.1111/j.1468-0297.2004.00236.x

http://dx.doi.org/10.1111/j.1468-0297.2004.00236.x

Cite this

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